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SBA 7(a) Denial of the Guaranty – Environmental Issues

Posted by Prudent Lenders in Blog, News, SBA 7(a) Lessons Learned – SBA Question? - Ask the Experts with No Comments

It is the SBA’s policy that all lenders must follow SBA regulations on environmental investigations at the origination stage of an SBA 7(a) loan. This becomes a problem most often in the context of loans to gas stations. As real property is usually taken as primary collateral, and such real property involves the sale of hazardous substances, the SBA strictly enforces its environmental policy in order to avoid losses due to the impact of environmental contamination on collateral and potential liability. Therefore, in most instances, an initial recommendation of a full denial usually results when a post-default environmental report reflects contamination and the lender failed to perform or comply with the recommendations of appropriate environmental due diligence. In cases where a lender has failed to comply with this policy, however, there is a possibility to mitigate the loss to the Agency and avoid a full denial of the guaranty if the lender is able to correct the environmental issues, at the lender’s cost, in a timely fashion.

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